This week President Obama took precious time off from the Gulf oil spill to sell his recently-passed health care bill to the American Nurses Association at the Washington Hilton Hotel. And Indiana Governor Mitch Daniels returned to Washington to explain to an American Enterprise Institute conference that Indiana has found ways to broaden health-care coverage and reduce overall state health care spending.

Mr. Daniels, a Republican in his second term as governor, contrasted Indianas approach with the bill Mr. Obama signed on March 23, 2010, which, Mr. Daniels said, is a “a huge, blown opportunity” that “freezes in perpetuity the worst features of the current system.” Such criticism is one reason some Republicans mention Mr. Daniels, 61, as a possible challenger to President Obama in 2012. He could hold up the Hoosier approach to health care as a better way.

Although Mr. Obama wanted to pass health care “reform” to bend down that notorious health cost curve - the rising trend in health care spending over time - Department of Health and Human Services chief actuary Richard Foster and Congressional Budget Office director Douglas Elmendorf have both stated that the legislation causes health care spending to rise rather than to fall.

Mr. Daniels explained in persuasive detail where Obamacare is flawed, and how Indiana has been doing a better, less costly job with its own health care plan, which the governor signed into law on May 10, 2007.

Mr. Daniels is a former President of Indianapolis-based Eli Lilly and Companys North American Pharmaceutical Operations, and before that was chief executive of the Hudson Institute, where this writer is a senior fellow.

Under Mr. Danielss leadership (he took office in 2005 and won a second term in 2008), Indiana has put in place health insurance plans for state workers and Medicaid recipients that has lowered their health care costs.

Now Indiana has to decide whether to set up a state health-care exchange, the Internet marketplace contemplated by the new health care law, on which health insurance companies may list their plans, as long as they meet federal government criteria. These include no co-payments for preventive routine care, such as annual checkups and mammograms, no lifetime cap on benefit payments, and no exclusions for pre-existing conditions. All of these provisions are likely to raise the cost of coverage by driving up premiums.

Contrary to popular perception, states are not required to set up health-care exchanges. Mr. Daniels said that he will wait for the release of U.S. Department of Health and Human Services regulations before deciding whether to create one in Indiana.

Mr. Daniels has not forgotten his experience as a director of the Office of Management and Budget in 2001-2003 for President George W. Bush. He demonstrated that Obama-style health care “reform” would carve a deep hole in Indianas budget, resulting in an increase in state government health-care spending of between $3 billion and $4 billion over the next decade, depending on how many Hoosiers sign up. The state budget now is $13 billion.

Many uncertainties surround the proposed exchanges. There are no precedents for states to follow and many provisions of the law are ambiguous, as Mr. Daniels pointed out. Many popular plans will not be available for purchase in the exchanges because they do not meet federal requirements. The result is confusion and tension at the state level about how to apply the law.

Mr. Daniels supports health savings accounts for routine care combined with insurance for major illnesses, a form of health insurance introduced in 1993 by an Indiana company, Golden Rule. Indiana offers these accounts to state employees and Medicaid recipients who enroll in the aptly-named Healthy Indiana Plan (HIP).

Mr. Daniels describes this system as “consumerism.” People enroll in plans with relatively high deductibles, and they weigh the costs and benefits of choosing to go to the doctor or have a medical procedure performed.

HIP offers health care to 50,000 low-income Hoosiers who earn less than 200% of the poverty line, now $21,660 in Indiana. Residents have $500 in free preventive care to ensure they dont skip routine check-ups, often the low-cost way to resolve health problems. Then, the state contributes up to $1,100, for other medical expenses, into individual medical accounts.

In fact, said Mr. Daniels, Hoosiers enrolled in HIP have higher rates of preventive care than do Indiana residents enrolled in other commercial health insurance programs. He finds that Medicaid recipients enrolled in HIP take advantage of more wellness visits, greater preventative care, and more generic medication. Hoosiers with these accounts are less likely to go to a hospital emergency room when they need care.

A similar system is in place for state employees. This year over 70% of Indianas state workers chose the Health Savings Account option, up from 4% five years ago. Indiana places $2,750 per year into employees accounts, out of which they pay all their health bills and get to keep the rest.

Hoosiers now have $30 million unused HSA funds, about $2,000 per state employee, and the state will save $20 million this year. The human resources firm Mercer estimates that Indianas total health care costs are 11% lower due to HSAs.

What if an employee gets very sick and uses up all his account, as happened to 6% of workers in 2009? The state splits additional health costs up to an out-of-pocket maximum of $8,000 for the patient, after which the state pays the remainder of costs for employees and families.

In general, Mr. Daniels reported, state workers are content, saving more than $8 million in 2010 compared to coworkers who use other plans, such as preferred provider networks.

With evidence piling up that the new health care law bends the cost curve up, not down, Mr. Daniels evidence from Indiana is most welcome. Because, as Mr. Daniels said about the new law, “The longer you look at it, the worse it smells,” and its not too soon for Congress to be exploring alternatives.